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In re Community Bank of Northern Virginia

January 25, 2008

IN RE: COMMUNITY BANK OF NORTHERN VIRGINIA AND GUARANTY BANK SECOND MORTGAGE LITIGATION


The opinion of the court was delivered by: Gary L. Lancaster, District Judge.

MDL No. 1674

MEMORANDUM and ORDER

This is a putative class action alleging violations of the Real Estate Settlement Procedures Act, 12 U.S.C. § 2607, ("RESPA"), the Racketeering Influenced Corrupt Organizations Act, 18 U.S.C. §§ 1962(c), (d), ("RICO") and related state law claims. Before the court are the Settling Parties' Motion for Certification of a Settlement Class and Approval of Proposed Modified Settlement [Doc. No. 225], and the Objectors' Renewed Motion to Intervene [Doc. No. 284]. For the reasons set forth below, the court will deny the Objectors' Renewed Motion to Intervene, grant the Motion to Certify the Class and preliminarily approve the settlement. The Settling Parties will be required, however, to submit a proposed plan for notice pursuant to Fed.R.Civ.P. 23(e) within ten (10) days.

I. Class Description

For the purpose of clarity, we will refer to the various parties in the same manner as did the court of appeals in its August 11, 2005 opinion. Accordingly, the individuals represented by the law firms Carlson & Lynch, and Richardson, Patrick, Westbrook & Brickman will be referred to as the "Class Plaintiffs."*fn1 The individuals represented by the law firms Walters Bender Stroebhen & Vaughn, the Law Offices of Franklin R. Nix, The Sharborough Law Firm and the Legg Law Firm will be referred to as the "Objectors." Defendants Community Bank of Northern Virginia ("CBNV"), Irwin Union Bank and Trust, Guaranty National Bank of Tallahassee ("GBNT") and its successor the Federal Deposit Insurance Corporation ("FDIC") and the GMAC Residential Funding Corporation will be referred to collectively as "defendants."

The Class Plaintiffs and defendants (hereinafter "Settling Parties") seek certification of the following class:

All persons:

(I) who entered into a loan agreement with CBNV and/or GNBT;

(ii) whose loan was secured by a second mortgage deed or trust on property located in the United States;

(iii) whose loan was purchased by RFC; and

(iv) who were not members of the class certified in the action captioned Baxter v. Guaranty National Bank, et al., Case No. 01-CVS-009168, in the General Court of Justice, Superior Court Division of Wake County, North Carolina.

II. Background

A. Factual Background

The court of appeals succinctly summarized the underlying facts in this case in its opinion in this matter, In re Cmty. Bank of N. Virginia, 418 F.3d 277, 283-84 (3d Cir. 2005). Accordingly, there is no need to repeat them here. Suffice it to say that this matter concerns several actions "alleging an illegal home equity lending scheme against two banks," CBNV and GNBT, "and a company that acquired second mortgage loans from those banks in the secondary market," RFC. Id. at 283.

B. Procedural Background

1. The Complaints

A chronology of the multitude of complaints filed by Class Plaintiffs and the Objectors in this matter is set forth in this court's October 6, 2006 Memorandum [Doc. No. 223] and is incorporated herein by reference.

2. The Original Settlement

On July 14, 2003, Class Plaintiffs and CBNV, GNBT and RFC filed a joint motion for preliminary approval of a proposed nationwide class action settlement. The proposed settlement allocated payments to class members based upon: (1) when the loan closed; and (2) the borrower's state of residence when they obtained the loan. The proposed settlement guaranteed each class member a minimum payment of $250.00. In addition, upon submission of a claim form, some class members would be eligible for an additional $302.00. The maximum payment to any class member was $925.00. Defendants agreed to pay an aggregate amount of up to $33,000,000.00. Defendants also agreed to pay $8,100,00.00 in attorneys' fees.

On July 17, 2003, this court preliminarily approved the settlement and consolidated the above cases at Civil Action No. 03-425. This court further ordered that notice of the proposed settlement be sent to the class. On November 10, 2003, a Consolidated Amended Class Action complaint, joining all named Class Plaintiffs, was filed against CBNV, GNBT and RFC. Following a fairness hearing, this court approved the settlement on December 4, 2003.

The Objectors appealed and challenged "nearly every aspect of the proceedings in the District Court." In re Cmty. Bank, 418 F.3d at 298. The court of appeals reversed, remanded, and directed this court to "pay particular attention to the prevalence of colorable TILA, HOEPA, and other claims that the individual class members may have which were not asserted by class counsel in the consolidated complaint (or presumably in settlement negotiations)." Id. at 310.

3. Proceedings on Remand

In In re Cmty. Bank, the court of appeals held that this court did not adhere to the requirements of Fed.R.Civ.P. 23 in certifying a class and/or in approving the settlement. Among other things, the court of appeals held that the settlement may not be fair and the representation may not be adequate because class members may have "viable" claims under the Truth in Lending Act ("TILA"), as amended by the Home Ownership and Equity Protection Act ("HOEPA"), 15 U.S.C. § 1601 et seq. The Objectors had argued that these claims were not pled by the named plaintiffs and were not adequately compensated for in the proposed settlement. The court of appeals further held that this court should, on a fully developed record, analyze the Objectors' motion to intervene as of right under Fed.R.Civ.P. 24(a).

Upon remand, this court held a status conference on November 4, 2005. After discussion with all interested parties, this court determined that the question of viability of the TILA/HOEPA claims would be addressed prior to the question of whether the settlement would be preliminarily approved. Notably, at the status conference, the Objectors orally withdrew their motion to intervene. After extensive briefing and oral argument by all interested parties, we determined that the individual class members did not have viable TILA/HOEPA claims. See Memorandum dated 10/6/2006 [Doc. No. 223].

4. The New Settlement

Prior to the court's viability determination, the Settling Parties continued negotiations. Specifically, the Settling Parties retained the Honorable Timothy K. Lewis, United States Court of Appeals for the Third Circuit, (Ret.), as a mediator. The Settling Parties, after a number of meetings with Judge Lewis, negotiated a new settlement agreement. The class definition did not change. The Settling Parties maintain that "[w]ithout conceding ... the viability of any purported claims the Modification provides an opportunity for Class Members to obtain significant additional benefits, which Class Counsel negotiated based upon the assumption ... that some borrower(s) might be able to overcome a motion to dismiss the TILA/HOEPA claims under Federal Rule of Civil Procedure 12(b)(6)." Joint Motion for Approval of Modified and Enhanced Settlement Agreement, [Doc. No. 225] at paragraph 5.

Pursuant to the new settlement, the class members would be eligible to receive an additional payment of $332.00 upon submission of a properly completed claim form. The defendants agreed to pay up to an additional $14,600,000.00 to the class for a total potential payment of up to $47,600,000.00. The Settling Parties also agreed that defendants will create a fund of $7,500,000.00 for attorneys' fees and costs. Thereafter, Class Counsel would petition the court for an award of fees not to exceed $7,500,000.00. Defendants further agreed, if the court orders, to pay an additional $2,500,000.00 in attorneys' fees.

The Objectors oppose the new settlement for many of the same reasons they opposed the original settlement. Specifically, the Objectors contend that the Class Plaintiffs are inadequate representatives. The Objectors argue that the Class Plaintiffs have failed to assert viable claims in exchange for defendants' agreement not to oppose Class Plaintiffs' request for $7,500,000.00 in fees. Although the Objectors concede that the proposed class satisfies most of the Rule 23 requirements, their ...


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